U.S. Private Credit Risks: The Trillion-Dollar "Gray Rhino" Amid Redemption Waves

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Once regarded as a revenue booster by international giants, it has now become a hot potato.

Since 2026, the US private credit market has faced an unprecedented stress test. Leading institutions such as Blackstone, Blue Owl, BlackRock, Oaktree Capital, Apollo, Ares, and others have seen their private credit products repeatedly reach redemption limits, exposing mismatches between capital and assets.

“Over the past few years, US private credit products have been one of the most consistent transactions globally, but now, this consensus is beginning to shake and collapse,” said Li Wei (pseudonym), an institutional participant involved in cross-border asset allocation, to China Securities Journal.

More and more investors are beginning to wonder what effects this “butterfly” across the ocean might trigger. Recently, China Securities Journal conducted an interview on related issues.

What’s going on with US private credit?

In February 2026, Blue Owl, an alternative investment firm in the US, announced that one of its private credit funds with a scale of $1.6 billion would permanently close its redemption window. This means investors may have to wait for the fund to wind down gradually. The market views this as a landmark event exposing private credit risks.

In early March, Blackstone’s flagship credit fund BCRED, with a scale of $82 billion, received redemption requests totaling 7.9% of the fund size, exceeding the quarterly redemption limit of 5%. Blackstone and its senior management urgently invested about $400 million of their own capital to address the situation.

Next came BlackRock, whose $26 billion private credit fund HLEND saw redemption requests reaching 9.3% of net assets in the first quarter, while the fund adhered to the contractual 5% redemption limit. Subsequently, private credit products from multiple institutions have received redemption requests exceeding the quarterly limit.

The capital markets have also begun pricing this risk. In the first quarter, the stock prices of private credit giants like Blackstone, Apollo, Blue Owl, and Ares fell by 22% to 38%.

Private credit mainly serves mid-sized growth companies that are underserved by traditional bank lending. According to multiple data sources, the global private credit management scale has exceeded $2 trillion, with US private credit management reaching $1.4 trillion or more.

A staff member from a leading institution said, “Top management’s attitude toward private credit has gradually changed. In early 2025, they emphasized growth and opportunities; by the end of the year, they focused on cycles and risk management, becoming noticeably more cautious.”

Where is the problem?

“The wave of redemptions in private credit mainly stems from the maturity mismatch of semi-liquid funds,” Li Wei explained. “These funds’ underlying assets are corporate loans with maturities of 3 to 7 years, which are essentially illiquid assets. However, the fund promises quarterly redemptions, giving investors a certain degree of liquidity, creating a natural gap between the two. This gap isn’t a design flaw but a deliberate trade-off. Usually, funds will design conditional redemption mechanisms to manage this gap.”

“But the problem is that these products are being sold in large quantities to retail high-net-worth clients who don’t truly understand this mechanism,” Li Wei said. “Sales teams tend to package them as near-demand deposits or quarterly redeemable products, while deliberately downplaying the actual constraints triggered by redemption limits. Under normal market conditions, this contradiction wouldn’t surface because scattered redemption requests can be fully covered by new fundraising. But in extreme situations, when market sentiment reverses collectively, and a large number of investors rush to exit simultaneously, the redemption mechanism shifts from a buffer to a barrier — which is exactly what has been happening since late 2025.”

Why is the pressure surfacing now?

Based on insights from multiple institutional sources, the pressure on the US private credit market in 2026 mainly comes from two aspects.

First, the disruption caused by artificial intelligence (AI) to software company business models. Previously favored software companies in direct lending markets are now being shaken by AI. ICBC Asia Research noted that AI’s near-zero marginal cost automation could compress the value of software tools. As a result, global software stocks have plummeted. UBS warned that in an AI-disruptive scenario, private credit default rates could rise significantly.

Second, the rising proportion of PIK (payment-in-kind or deferred interest) becomes a hidden risk behind apparent yields. When companies lack cash to pay interest, PIK mechanisms allow interest to be added to the principal, which is paid off in a lump sum at maturity. While there’s no default on paper, risks continue to accumulate.

How might the risks evolve?

Will US private credit risks develop into a subprime crisis?

Several analysts believe that, at present, the probability of evolving into a systemic financial crisis is relatively low. According to a report by the Macroeconomic Team of Industrial Securities, the current risks mainly stem from structural flaws in the market. There’s no sufficient scale for the risks to spread across the entire system, and they differ significantly from the subprime crisis in many features.

However, future developments require close monitoring. Zhang Xia, Chief Strategy Analyst at China Merchants Securities, pointed out four areas to watch: whether redemption pressures will further intensify, the mutual transmission of AI bubbles and private credit risks, the impact of high oil prices on Fed policy shifts and interest rate hikes, and the infiltration of private credit into the banking system. “Looking ahead, if conflicts persist beyond expectations, and oil prices move significantly higher, the Fed is likely to turn to rate hikes in the next 1-2 years, which could further expose private credit risks,” Zhang said.

What lessons does this hold for the Chinese market?

A senior public fund manager noted that the deep structural contradictions in the US private credit market are worth deep reflection.

First, regarding disclosure standards. The valuation transparency, PIK structure disclosure requirements, and the appropriateness of semi-liquid product sales all have regulatory arbitrage space. How to establish stricter disclosure mechanisms while protecting market innovation is a core issue that needs urgent exploration.

Second, regarding the scope of liquidity regulation frameworks. The current fund liquidity regulation mainly targets publicly traded funds, with clear limitations when applied to semi-liquid private credit products. Incorporating maturity mismatch risks into regulation is a systemic challenge faced worldwide.

Third, regarding cross-border risk monitoring. For domestic institutions participating in the global private credit market, the credit quality of underlying assets, liquidity arrangements, and cross-border redemption mechanisms should be incorporated into routine monitoring and stress testing frameworks.